Diffrence between present values of future cash, Financial Management

Q. Diffrence between present values of future cash ?

The difference among the present values of future cash inflows generated by an asset and its cost is known as net present value.

  • A financial asset or else a project which has a positive NPV create wealth for shareholders and thus are undertaken.
  • Alternatively a financial asset or a project resulting in negative NPV must be rejected since it would reduce shareholder's wealth.
  • If one out of a variety of projects is to be chosen the one with the highest NPV is adopted.

The NPV is able to be computed with the help of the following formula:

  A1                             A2                   An

W = ------ + ------ + ------- + -------  - C

(1+K)1                    (1+K)2                (1+K)n

W = Net Present Worth

A1, A2,--An = Stream of Cash Flows

K = Appropriate discount rate to calculate risk and time factors

C = Initial outlay to obtain an asset or pursue a course of action.

Posted Date: 8/3/2013 3:41:15 AM | Location : United States







Related Discussions:- Diffrence between present values of future cash, Assignment Help, Ask Question on Diffrence between present values of future cash, Get Answer, Expert's Help, Diffrence between present values of future cash Discussions

Write discussion on Diffrence between present values of future cash
Your posts are moderated
Related Questions
Illustrate the capital markets in maturity of the securities? On the basis of the maturity of the securities traded, capital markets can be introduced here: Capital markets

The first step in valuation process is to estimate the cash flows that are expected to be received in the future. In debt securities, there are two types of possi

Ricardo Martinez has prepared the following financial statement projections as part of his business plan for starting the Martinez Products Corporation.  The venture is to manufact

FACTORS INFLUENCING CAPITAL STRUCTURE/DETERMINANTS OF THE CAPITAL STRUCTURE 1. Financial leverage (or) Trading on equity it is the make use of long term fixed interest bea

Sega Inc. expects earnings/dividends to grow at an annual rate of 30 percent for the next 4 years. After that they feel that the market will get saturated and the growth rate will

discuss an operating cycle of vegetable growing in Uganda

Let us consider a bond with callable or prepayable feature. Figure shows the price/yield relationship of option-free bond and callable bond. The price yield

Normally, floater coupon rate moves in the same direction as the reference rate. That is, with an increase in the reference rate, the floater coupon rate also increases

Explain cash flow and funds flow analysis with suitable example from an existing corporate entity for at least three years i.e. 2008, 2009.2010.

MARGINAL ANALYSIS It is difficult to develop the conditional profit table when there are a large number of scenarios and possible actions. The marginal analysis approach sides